This may cost you and your friends a few bucks in the short term, but help ensure you remain friends in the long term, and that makes the expenditure well worth it. Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. Amanda Breen. Chloe Arrojado. Entrepreneur Store. Daniel Laboe. Skip to content Profile Avatar. Subscribe to Entrepreneur.
Magazine Subscriptions. How to Make a Franchise Partnership Work Partnerships are always a challenge, but creating a franchise ownership partnership has its own unique issues. By Jeff Elgin October 27, Opinions expressed by Entrepreneur contributors are their own. Written By Jeff Elgin Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. More About Franchises. News and Trends. Amanda Breen Nov 12, Any legal disputes that must be resolved in mediation or through the court system can be costly in both time and money, which takes away from the success of the franchise.
While much conversation is devoted to the initial investment that a franchisee must make in the franchise, that ignores the initial cost that is taken on by the franchisor. A franchisor must make sure that the franchise agreement is written clearly and reviewed by a lawyer experienced in franchise law. You may also hire a franchise consultant for expertise during this process. Starting a franchise requires an initial investment of both time and money on the part of the franchisor.
While not entirely a drawback, dealing with the federal regulations set down by the Federal Trade Commission for franchises can be a nuisance for franchisors. These regulations ensure that franchises are operated fairly, but it also requires time and effort from the franchisors to meet all of these regulations. This can be a time-consuming process, but can be made easier with professional guidance. Like most other business decisions, starting or buying into a franchise has its pros and cons.
And not all franchises or franchise relationships are created equally. This article originally appeared on JustBusiness, a subsidiary of NerdWallet. Advantages of franchising for the franchisee.
Business assistance. Brand recognition. Lower failure rate. Buying power. Lower risk. Built-in customer base. Be your own boss. Disadvantages of franchising for the franchisee. Restricting regulations. Business location. Hours of operation. Advertising and marketing.
Resale conditions. Initial cost. Ongoing investment. Potential for conflict. Lack of financial privacy. Advantages of franchising for the franchisor. Access to capital. Efficient growth.
Minimal employee supervision. Increased brand awareness. Reduced risk. Disadvantages of franchising for the franchisor. Loss of complete brand control. Increased potential for legal disputes. Initial investment. Federal and state regulation. The final word. For example, if cash is tight, independent business owners can delay remodeling or expansion plans. They can also choose to downsize the scope of the projects they pursue. Franchise business buyers typically have lower total investment costs especially upfront , but need to fulfill the obligations set by franchisors.
For example, in addition to an upfront franchise fee, franchise buyers are required to pay royalties on an ongoing basis. When it comes to renovations and other investments, the franchisor often has the right to dictate the timing and scope of the remodel to franchisees. In most cases, franchise buyers have an advantage over independent business owners when it comes to brand recognition.
Unless the independent business seller has proactively cultivated the brand, it's unlikely that the business will enjoy the brand recognition that comes with standard franchise business opportunities.
But buyers also need to recognize that brand recognition can have a dark side. If the franchisor or another franchisee does something that results in negative publicity, all of the brand's franchisees suffer--a risk that independent business buyers don't have to worry about. Franchise businesses tend to be popular with buyers who lack extensive business or industry experience.
Certainly, experienced business owners also buy franchises, but franchisors make it easier for first-time business owners to succeed by providing access to a business system, corporate support, a supplier network and other services.
Independent business owners, on the other hand, typically have to go it alone. In return, however, they get complete control. Although independent business owners retain total control over their companies, they don't have access to the support franchisors provide their franchisees in marketing, operations, supply chain management, human resources and other departments.
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